APIs used to facilitate payment initiation were introduced several years ago but are still not widespread everywhere. Yet payment initiation, which relies on open banking, offers many advantages.
Apart from bank transfer, the French had very few automated payment solutions capable of accessing their bank accounts to send money to an e-merchant. Then came ‘payment initiation’. Despite its geek-jargon name, this is a solution that is both simple to use, fast, and highly secure. While allowing customers to remain logged on to the online sales site, payment initiation redirects them directly to their banking environment to authenticate themselves and trigger a transfer of money from their account to the merchant’s.
Benefits for both seller and buyer
The benefits of this system are many. Credit or debit cards payment amounts are often capped, hence blocking pricey purchases, particularly when it comes to B2B operations. Performing a bank transfer involves a long procedure: adding a new recipient, entering their IBAN, or RIB in France, with the added risk of data entry errors, and finally waiting for the bank’s authorisation.
In contrast, payment initiation is much more flexible since the user is accompanied throughout the application. Fewer intermediaries mean fewer barriers, thereby reducing the failure rate of transactions. Similarly, a transaction cannot be contested because the buyer is the only one to initiate the transfer. Hence, there can be no dispute with, or possible recourse, against the merchant site.
For the buyer, payment initiation also offers a more secure alternative than the credit or debit card which require entering information including the primary account number (PAN) and the visual cryptogram, increasing the risk of a security breach by a hacker. This issue has regularly made the headlines. In Europe last May, the airline EasyJet announced that 9 million of its customers were the victims of a highly sophisticated attack: the credit card details of 2,208 customers were hacked (Source ZDNet). In the United States, credit card fraud statistics show that the misuse of payment cards is a global problem. Allegedly, for every $100 spent with a credit card, $6.97 is stolen. Thus $24.2 billion was reportedly lost in 2018 (Source SpendMeNot).
With payment initiation there is no need to leave the store—the bank comes to the customer
How about the customer journey? Once on the website, the buyer chooses an item and then the payment method. By opting for payment initiation, the customer then selects the bank that allows him or her to access the payment information. Everything is already filled in—a time-saver with no security risk due to strong authentication required to access the banking space.
Payment initiation is intended for all age groups, young and old alike, whether they are comfortable with new technology or reticent about online payment.
In the B2B sector, where bank transfers are still commonly used for high-value baskets, payment initiation looks to be a quick and reliable alternative. User feedback has increasingly shown the benefit of adopting this technology which has the added value of being much less expensive for the merchant than accepting a business credit or debit card.
In retail as well, payment initiation is advantageous for various type of expensive purchases, e.g., travel.
Clearly payment initiation has come at an expedient time, adding to the whole gamut of available payment methods. Considering its many advantages for optimising the customer journey, payment initiation just may become a choice method for commercial transactions.
An expert view by Fabienne Pasquet, Head of Sales Europe at Limonetik.
